i'm not sure, but i think that certain linux distros refer to "/" as "rootfs"

I dont think this should be too hard to implement: just change something in the initrd. perhaps give an option to rename rootfs after installing and use a kernel command line (like fs=gentooxfs) to specify the file. if you do decide to implement the kernel command line option, it could be used to boot different installations without renaming files.

I would have to object to your theory of some linux distro's thinking "/" as "rootfs".

rootfs is an arbitrary name and it in itself has a root "/" when mounted as a loopback filesystem.
However in your case, unless you
1. mounted the drive you had rootfs on
2. mounted your rootfs as loopback
3. chroot'ed to your rootfs loopback

thats the only way (i can guess) you could get rootfs to appear as "/" in xboxhdm.

I would suggest extracting your rootfs to your hdd, and booting with something like knoppix to tinker with your rootfs. I would say it has a bit more tools do do things like fsck, retrieve data across smb, cross compile?, among others.

Perhaps I should have gone to bed earlier so i wouldnt look so much like a monkey if I am wrong